Deputies pass budget as Ukraine seeks to unlock frozen IMF billions

KIEV (Reuters) - Ukrainian lawmakers passed the 2019 budget early on Friday, a crucial step towards securing the first tranche of a new $3.9 billion IMF aid program and providing financial stability ahead of elections next year.

Finance Minister Oksana Markarova said the government would submit the budget to the International Monetary Fund for assessment as quickly as possible but declined to comment on the tranche size.

Exact details of the budget’s final version are not yet public but Markarova said it was in line with the IMF’s demand for a budget deficit of around 2.3 percent.

The IMF did not immediately comment on the budget vote.

“We have begun many processes, reforms and transformations,” Prime Minister Volodymyr Groysman told lawmakers before the vote, held after parliament had worked through the night.

“The country’s budget is a key tool for the implementation of these tasks,” he said. “In 2019, in the year of turbulence, we must ensure stability.”

Groysman had told Reuters last week he hoped to secure an IMF tranche as early as December once the budget passed, which would also pave the way for similar disbursals from the European Union and the World Bank.

Markarova said the government expected 500 million euros from Brussels this year and a loan guarantee from the World Bank that will allow Ukraine to borrow about $800 million.

The government cannot directly use the IMF money, which must be used to boost the central bank’s reserves. But the deal gives the markets confidence, which has allowed Ukraine to issue eurobonds since the latest deal was struck.

The European Union and the World Bank will only lend to Ukraine once the IMF has.

Ukraine has tapped the IMF and other international bodies for money to guarantee its stability, as it faces a rising debt burden over the next two years and closely-fought parliamentary and presidential elections in 2019.

However, the IMF loans may come at a political cost. The government was required to raise household gas prices by nearly a quarter as a precondition for them, a move criticized by some opposition lawmakers during Thursday’s parliamentary debates.

Yulia Tymoshenko, a former prime minister who has led some early opinion polls for next year’s race, has denounced the price hike as a “genocide against the Ukrainian people”.

Markarova, who has been acting finance minister since June, was confirmed in the post by parliament on Thursday.

Like Groysman and the central bank governor, Markarova has talked up Ukraine’s need for further cooperation with the IMF, which supported Ukraine’s economy after the 2014 annexation of Crimea by Russia and the outbreak of fighting in the east.

IMF aid has effectively been frozen since April 2017, as Ukraine’s performance on reforms, such as setting up a special court to try corruption cases, slowed down and the government proved reluctant to raise gas prices, kept artificially low since Soviet times, to market levels.

The government raised household gas prices by 23.5 percent but they are still just over two-thirds of what commercial consumers pay.